Broad overview of the trust loss measures

What are the elements of the income injection test?

There are a number of elements that need to be met before the test applies. These are explained below.

The trust must have an allowable deduction

The first element is that the trust must have an allowable deduction in the income year being examined. This can include a deduction for a prior-year loss as well as current-year deductions. [Paragraph 270-10(1)(a)].

There must be a scheme under which certain things happen.

For the test to apply, there also has to be a scheme under which the things set out below happen.

• The trust must derive assessable income in the income year. This is referred to as the 'scheme assessable income'. [Subparagraph 270-10(1)(b)(i)]
• A person not relevantly connected with the trust (the outsider) must directly or indirectly provide a benefit to the trustee or a beneficiary (or their associates). [Subparagraph 270-10(1)(b)(ii)]
• The trustee or a beneficiary (or associates) must directly or indirectly provide a benefit to the outsider or an associate of the outsider. However, if the test is being applied to a family trust and this return benefit is being provided only to an associate who is not an outsider to the trust, this element will not be satisfied. This ensures that the test will not apply where benefits only flow from the family trust to members of the family group. [Subparagraph 270-10(1)(b)(iii)].

There must be a connection between the deduction and one or more of the things that happen under the scheme.

The final element is that it must be reasonable to conclude that any one or more of the following has happened under the scheme:

• the scheme's assessable income has been derived wholly or partly, but not merely incidentally, because the deduction is allowable
• the benefit has been provided to the trustee or beneficiary (or their associates) wholly or partly, but not merely incidentally, because the deduction is allowable
• the benefit has been provided by the trustee or a beneficiary (or associate) wholly or partly, but not merely incidentally, because the deduction is allowable. [Paragraph 270-10(1)(c)].

Whether a benefit has been provided merely incidentally because a deduction is allowable to the trust depends on the particular facts and circumstances surrounding the scheme entered in to.

Sections within Income injection schemes

• When does the income injection test apply?
• Terms used in the income injection test
• What are the elements of the income injection test?
• What are the consequences if the test is failed?
• Examples of how the income injection test may apply